Global pension funds chase Indian infra for better returns

Canada Pension Plan Investment Board (CPPIB) teamed with US-based alternative investment fund Kohlberg Kravis Roberts (KKR) last week to buy 10.3per cent stake in Bharti Infratel for Rs 6,193 crore. The Canadian pension fund contributed about Rs 2,000 crore.

In late 2014, CPPIB invested a similar amount in L&T IDPL, which develops highways, bridges, airports and real estate. This was the first direct investment by an international pension fund in Indian infrastructure.

In November 2015, another Canadian pension fund, Public Sector Pension Investment Board (PSP Investments), bought a 49 per cent stake in Reliance Infrastructure’s electricity generation, transmission and distribution business in Mumbai for an estimated Rs 3,500 crore. Also, about a year earlier, another Canadian pension fund, CDPQ (Caisee de depot et placement du Quebec), committed $150 million (Rs 1000 crore) in renewable energy in India, as it established its base in New Delhi for India and appointed Anita Marangoly George as managing director for South Asia. “Global pension funds, driven by an increasing elderly population and increasing longevity of the population they serve, are seeking higher return from the assets they manage,” says Rahul Mody, managing director, Ambit Corporate Finance.

While Canadian pension funds began the trend, now European ones have started showing interest. 

In November, Dutch pension fund APG Asset Management joined hands with Virtuous Retail (VR), an arm of investment firm The Xander Group, to form $450 million joint venture (JV) to buy retail real estate in India. 

The JV has 77 per cent equity investment from APG bought a portfolio of three shopping mall assets from a Xander-sponsored fund for about Rs 2,000 crore ($300 million). The duo intends to acquire more retail assets.  “The yield in OECD (Organisation for European Economic Co-operation) countries remains very low. Hence, we are seeing asset reallocation by these funds from fixed income assets to infrastructure sector assets as the sector provides higher return without increasing the risk profile much,” Mody says.

That is the reason the Indian infrastructure sector, with its significant growth prospects and improving regulation, is of significant interest to global pension funds. 

Among Canadian and European funds have mainly shown interest. Within infrastructure, these funds are sector agnostic, so the interest is there in all infrastructure sectors — transport, power, energy and telecom. “As a few infrastructure companies are now also exploring Infrastructure Investment Trusts (InvIT), it would provide an additional exit option to investors,” says the private equity practice head of a global consultancy firm. 

“While this is not directly related to the recent investments made by pension funds as they are doing it for really long term, this has certainly improved the investment environment for the sector,” he adds.

A snapshot of PE activity and deals

A Snapshot of PE activity & deals: Click to enlarge

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